How the U.S. got it (mostly) right in the economy's rescue
How the U.S. got it (mostly) right in the economy's rescue
The result is an economy far stronger than most forecasters expected last spring, even as the pandemic proved much worse than feared. Households are sitting on trillions of dollars in savings that could fuel an epic rebound as the health crisis eases.
By Ben Casselman
Published: Mar 16, 2021
Shoppers at a mall in Los Angeles on March 11, 2021. Consumer spending is nearly back to its prepandemic level. (Mark Abramson/The New York Times)
When the coronavirus pandemic ripped a hole in the economy a year ago, many feared that the United States would repeat the experience of the last recession, when a timid and short-lived government response, in the view of many experts, led to years of high unemployment and anemic wage growth.
Instead, the federal government responded with remarkable force and speed. Within weeks after the virus hit American shores, Congress had launched a multitrillion-dollar barrage of programs to expand unemployment benefits, rescue small businesses and send checks to most American households. And this time, unlike a decade ago, Washington is keeping the aid flowing even as the crisis begins to ease: On Thursday, President Joe Biden signed a $1.9 trillion aid bill that will pump still more cash into households, businesses, and state and local governments.
The Federal Reserve, too, acted swiftly, deploying emergency tools developed in the financial crisis a decade earlier. Those efforts helped safeguard the financial system — and the central bank has pledged to remain vigilant.
The result is an economy far stronger than most forecasters expected last spring, even as the pandemic proved much worse than feared. The unemployment rate has fallen to 6.2%, from nearly 15% in April. Consumer spending is nearly back to its pre-pandemic level. Households are sitting on trillions of dollars in savings that could fuel an epic rebound as the health crisis eases.
Yet not everyone made it into the lifeboats unscathed, if at all. Millions of laid-off workers waited weeks or months to begin receiving help, often with lasting financial consequences. Aid to hundreds of thousands of small businesses dried up long before they could welcome back customers; many will never reopen. Long lines at food banks and desperate pleas for help on social media reflected the number of people who slipped through the cracks.
“The damage that has been done has occurred in a disparate fashion,” said Michelle Holder, a John Jay College economist who has studied the pandemic’s impact. “It’s occurred among low-income families. It’s occurred among Black and brown families. It’s certainly occurred among families that did not have a lot of resources to fall back on.”
Jesus Quinonez lost his job as a manager at a warehouse in the San Diego area early in the pandemic. He quickly found another job — with a company that shut down before he could begin work. He has not worked since.
It took Quinonez, 62, three months to fight his way through California’s overwhelmed unemployment insurance system and begin receiving benefits. Less than two months later, a $600-a-week unemployment supplement from the federal government expired, leaving Quinonez, his wife and his four children trying to subsist on a few hundred dollars a week in regular unemployment benefits.
By January, Quinonez was four months behind on rent on the one-bedroom trailer he shares with his family. He had raided his 401(k) account, leaving no savings a few years before his intended retirement. Government nutrition assistance kept his family fed, but it didn’t help with the car payment, or pay for toilet paper.
“I started falling behind on my bills, plain and simple,” he said.
But in December, Congress passed a $900 billion aid package, which included a second round of direct checks to households and revived the expanded unemployment programs. By January, Quinonez was able to pay off a least part of his debt, enough to hold on to the trailer and his car. The next round of aid should carry Quinonez until he can work again.
“As soon as they lift the restrictions and more people get vaccinated, I see things coming back good,” he said. “I expect to get a job, and I expect to continue working until I retire.”
Whether Quinonez’s story — and millions more like it — should count as a success or failure for public policy is partly a matter of perspective. Quinonez himself is unimpressed: He worked and paid taxes for decades, then found himself subject to a decrepit state computer system and a divided Congress.
“Now that we need them, there’s no freaking help,” he said.
Research from Eliza Forsythe, an economist at the University of Illinois, found that from June until Feb. 17, only 41% of unemployed workers had access to benefits. Some of the rest were unaware of their eligibility or could not navigate the thicket of rules in their states. Others simply were not eligible. Asian workers, Black workers and those with less education were disproportionately represented among the nonrecipients.
The gaps and delays in the system had consequences.
“The impact of that is folks’ having to move out of their apartments because they have this money that’s supposed to be coming but they just haven’t received it,” said Rebecca Dixon, executive director of the National Employment Law Project, a worker advocacy group. Others kept their homes because of eviction bans, but had their utilities shut off, Dixon added, or turned to food banks to avoid going hungry — measures of food insecurity surged in the pandemic.
Beyond the successes and failures of specific programs, any evaluation of the broader economy needs to start with a question: Compared to what?
Relative to a world without COVID-19, the economy remains deeply troubled. The United States had 9.5 million fewer jobs in February than a year earlier, a hole deeper than in the worst of the last recession. Gross domestic product fell 3.5% in 2020, making it among the worst years on record.
Relative to the rosy predictions early in the pandemic — when economists hoped a brief shutdown would let the country beat the virus, then get quickly back to work — the downturn has been long and damaging. But those hopes were dashed not by a failure of economic policy but by the virus itself, and the failure to contain it.
“If you want to think back on what we got wrong, really the fundamental errors were about the spread of the virus,” said Karen Dynan, a Harvard economist and Treasury Department official during the Obama administration.
But relative to the outcome that forecasters feared in the worst moments last spring, the rebound has been remarkably strong. In May, economists at Goldman Sachs predicted that the unemployment rate would be 12% at the end of 2020 and would not fall below 6% until 2024. The same team now expects the rate to fall to 4% by the end of this year. Other forecasters have similarly upgraded their projections.
The recovery proved so strong in part because businesses were able to adapt better — and Americans, for better or worse, were willing to take more risks — than many people expected, allowing a faster rebound in activity over the summer. But the biggest factor was that Congress responded more quickly and forcefully than in any past crisis — a particularly remarkable outcome given that both the White House and Senate were controlled by Republicans, a party traditionally skeptical of programs like unemployment insurance.
“The dominant narrative about Washington and about legislating and public policy is one of dysfunction, one of not being able to rise to meet challenges, one of not being able to get it together to address glaring problems, and I think it’s a well-earned narrative,” said Michael R. Strain, an economist at the American Enterprise Institute. “But when I look back over the last year, that is just not what I see.”
Congress did not prevent a recession. But its intervention, along with aggressive action from the Federal Reserve, may have prevented something much worse.
“We could have experienced another Great Depression-like event that took years and years to recover from, and we didn’t,” Strain said.
The $1.9 trillion plan that Democrats pushed through Congress this month could help the United States achieve something it failed to do after the last recession: ensure a robust recovery.
If that happens, it could fundamentally shift the narrative around the pandemic recession. The damage was deeply unequal, and the economic response, though it helped many families weather the storm, did not come close to overcoming that inequity. But a recovery that restores jobs quickly could help workers like Quinonez get back on track.
“It’s just a bad year, and you just close the page and move on and try to make the best of the new days and new years,” he said. “Things are going to get better.”